Depression or Recession?

Readers of this blog know my opinion on whether we are in a depression. Whether you think it is a depression or recession is beside the point as there is no good definition of either. Oh I know, it used to be said that 2 negative quarters were a recession if the referee the US government employs, the NBER(National Bureau of Economic Research), decides to call it one. Other economists have opined that a recession is a 1.5% rise in unemployment. But NBER does not referee depressions because they are on the Fed payroll and if they said we were in a depression, why folks would panic, consumer confidence would drop and sales of Wallmart’s salad shooters would plunge. In fact I read that the Great Depression wasn’t even called that until 1937 when a journalist dubbed it the Great Depression. Most economic writers do seem to agree that a recession morphs into a depression if it lasts a long time(3-4 years), if unemployment really increases, credit availability drops or goes unused, banks fail, companies fail at a high rate, the stock market collapses, trade and commerce falls and so forth . It is a time of fiscal and financial crises and collapses. Virtually everyone I read say the recession is an unfortunate but normal component of any business cycle. I doubt that any government would ever call a recession, no matter how severe, a depression. That is left to journalists, economists and now us bloggers. The government has gone to great lengths to minimize and obfuscate and conceal any information or data that would give a true and accurate picture of our economic situation. Our government and probably most governments no matter which party is in control, or which continent they are on, have no incentive to engage in truth telling. It makes them look bad and they are afraid the citizens would take to the streets if they really knew the facts. It is rare that government officials lay out the facts in a truthful fashion. Paul Volker got away with doing it for a while 30 years ago but when his President, Jimmy Carter put on his cardigan and told Americans they should conserve energy and move to a more sustainable way of life, he was crushed by an aged republican who developed full blown Alzheimer dementia in his second term and he has been replaced by a steady stream of advisers with economic dementia. The government statistics are manipulated and modeled until they are meaningless. If a particular statistic is bad, government statisticians will make it less bad. If it’s good, they will spin it better. I completely ignore government statistics and so should you. John Williams gives unvarnished statistics at his website: On John’s site you will find official government numbers and John’s take usually listed as “SGS” and with what I find particularly useful, older official government statistical methodologies. Here are some examples: Official unemployment is 10% which is the U-3 government number. A broader government number is U-6 which is 17.8%, and John’s number which he says approximates the methodology used 50 years ago is 22%. Similarly, official CPI inflation is -.2% and using pre-Clinton era methods, the inflation rate is 3%. I am unable to post John’s graphs here and would urge the reader to just go to his website. John says that the recession started in the 4th quarter of 2007 which would make this recession 2 years old. If this downturn, as Obama calls it, lasts another year or two, then we will have met even the conservative definition of a depression. You can be sure TPTB will not allow this recession to be re characterized as a depression. Even the way government economists calculate GDP is inherently flawed. For example. Let’s take a worker at Rockford Products in Illinois, where my wife worked briefly. A worker getting paid $10/hr might produce in one hour bolts or screws which could be sold for $50, thus adding $50 to the nations GDP. An MBA at Goldman Sachs making $250/hr(before taxpayer assisted bonuses of course), might craft a CDO or CDS derivative product which could be sold for $10,000,000. Let’s give Goldman Sachs a net profit on that very small transaction $1 million and so that gets added to GDP. Now there is no way to make the productivity of these two disparate laborers equivalent but don’t tell that to the BLS. If there were just two workers in the country then BLS would say that the average hourly salary in the US was($130/hr…250+10/2.) They would also calculate worker productivity in similar fashion. Now of course there are many workers in the country to lump together but when over 20% of your GDP is related to financial services, as it was before our recent cliff diving economy, then calculating and posting the notional value of the nation’s goods and services and comparing them to to other nations becomes somewhat meaningless. I would think that our GDP should be broken out into several categories of GOODS production and SERVICES production which is the only way I can see to make comparisons to other nations economies even possible. I do not think our current severe recession meets the criteria of a depression but only because it has only gone on for 2 years. Unemployment is not yet at the 25-30% rate of the Great D, but it is close. Many other metrics of this recession match or exceed the Great D such as the debt to GDP ratio and certainly unfunded liabilities far exceed what existed in the 1930s. The main reason I think that we are in a depression is that the government is doing nothing to resolve or attenuate the mountain of debt built up and in fact is doing the exact opposite by shielding the bondholders in the big financial institutions as well as attempting to save favored industries and propping up the housing market and other asset classes while at the same time urging continued expansion of debt and credit. Christine Romer on Obama’s economic nothinktank even said today that”spending our way out of recession is sensible policy.” She means of course”printing our way out of recession is sensible policy.” With economic advisers of this caliber, I will stick to my opinion that this recession will meet the definition of depression within the next year or two.


Published by Rendezvous Mountain Farm

I was born in Cascade county Montana and raised in a dozen Air Force SAC bases. I attended Holy Cross,West Point and UNC in Chapel Hill(MD"71). Army doc in the last years of the Viet Nam fiasco. My wife and I live in a log cabin I built from standing dead lodgepole trees we cut from Shadow Mountain and regional local timber in 1976 . I've done a dozen different jobs including construction, boat building,magazine writing and commercial fishing and retired from the Emergency and Operating Room in 2004. We manage a small diversified organic farm including leased land which totals about 40 acres in the Jackson Hole valley. We raise a variety of livestock which includes some heritage breeds of animals and poultry. We grow most of our food and forage. Our land is irrigated from Granite Creek and the Snake River and we raise and bale our own organic hay. We supplement with food collected from Jackson Hole Food rescue which is mostly dairy, bread and past date vegetables and food from the grocery stores and restaurants.

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